It is a common observation in American politics—how old, I do not know—that between the time it takes to gather its bearings and the time when it must spend campaigning for a second term, a four year presidency entails perhaps eighteen months to truly govern the country. Though I am not sure what particular landmark is used to denote the starting point of those eighteen months, it is no doubt on the horizon. We are now five months into Donald Trump’s presidency, and suffice it to say that those five months have not been used to the utmost by the new administration. Surely, not every hurdle has been their own doing; Democrats’ efforts to block President Trump’s nominations to appointed office have thus far been successful, and the media has been rapacious in criticizing the administration’s every move—in some cases with great justification, in some cases with none. In the midst of this, the underappreciated story has been a terribly lackluster GOP congress (and the House, especially) that has gotten ‘cover’ for its failures by the president’s Twitter ramblings and bravado. This blog having criticized congressional Republicans several times recently (here, here, here, and here), however, I recognize that someone could make a fair contention that I have criticized without construction. I intend to remedy that here.
Let us rewind to January and imagine an alternate history in which Republicans—and especially House Republican leadership—had taken a different approach and compare that to the actual history. In the actual chain of occurrences, Republicans chose first, either in deference to the new administration or a desire to appeal to Trump’s base, to pursue a “border adjustment” tax that would bolster some segments of domestic manufacturing by punishing other American producers and manufacturers who import any of their inputs from abroad. In essence, it amounted to a getting around the imposition of an outright tariff and the resulting tariff war by a legal technicality. Secondly, they chose, in classic Republican fashion, to default on their plan to repeal ObamaCare, to engineer and propose their own ObamaCare equivalent, and to manage somehow to make it at least as bad as the original. Third and lastly, they have now begun in the spring to focus on selling a federal budget and tax program which has little prospect of passing and which does little to effect the fundamental reform which is needed to restore our fiscal health.
In an alternate history, Republicans—let’s call them “Enlightened Republicans”—would have begun with tax reform. Now, here is where I will indulge a bit of fantasy. They would have done what Republicans have claimed for years that they wanted to do, laying out a plan for a low, flat tax structure. In an ideal world, it would be a Hall-Rabushka flat tax with no deductions—none, not one, zero. A Hall-Rabushka tax plan is the gold standard of tax codes, allowing for none of politicians’ favorite pastimes: tinkering with incentives and engaging in social engineering by altering the relative prices of certain kinds of behavior that benefit politicians but not necessarily the American people; things like mortgage deductions which gain politicians the support of developers and home builders while, in conjunction with child tax credits that give them an incentive to have more children, giving voters the incentive to settle down in a big, three-bedroom home with a mortgage that will keep them in their current locations and make the demographics of congressional districts more stable for the benefit of incumbents. With a Hall-Rabushka, such manipulations are out the window, people are allowed to keep more of their incomes, they have more disposable income to purchase or invest, and they are able to choose their own life plans according to their own values and the relative prices dictated by markets.
Most importantly for the short run, however, are the effects which such a tax plan has on the political process itself. A low, flat tax structure binds politicians, short of further increasing the national debt, to a set amount of annual revenue. It pushes all of what now appear as tax credits and deductions onto the expenditure side of the balance sheet, revealing exactly how much the government is spending to support certain preferred behaviors over others. What’s more: it sets the agenda by forbidding certain alternative plans, e.g., a federal healthcare program that tries to foster or punish consumers’ decisions as to whether or not to purchase insurance. Politicians are largely “locked in” to a fixed pie of revenue within which they must make trade-offs rather than playing their current game of “hide and seek,” in which they continue to hide federal spending and disguise their efforts to manipulate American consumers and businesses into politically (to say nothing of economically) desirable behavior. Beyond that, debates over healthcare, trade, entitlement programs, etc., must take place within the context of the limited means at politicians’ disposal and within the context of a legal commitment to the American people as to how much of their incomes the federal government will be extracting from them. The uncertainty which has prevailed in the economy over the last several years, in which programs with huge fiscal impact such as ObamaCare have lingered on the horizon and left businesses frozen with caution, would be largely resolved.
This, however, relies upon one large and false assumption: that Republicans had any desire to limit their own discretion to pursue a healthcare plan of their own, manipulate foreign trade, and default on pledges to deal meaningfully with the coming entitlement crisis. The GOP, for all of their faults, are not ignorant of the ideas which I have stated here. In fact, I know with certainty that at least one Republican leader’s office was advised of the importance of solving the tax code before all else as early as spring 2016 as well as the agenda-setting effect that doing so would have on the political process to come, and it chose nonetheless to go forward with trade and healthcare first. Thus, absent ignorance and ineptitude (and congressional leaders, unlike many in the White House, are not new to this game), we are left only with the conclusion that Republican leaders’ choices were the product of a deliberate choice to go forth unconstrained by fiscal boundaries on their own choices and those of their fellow legislators. For better or worse, elected officials lying to voters as to their intentions when they are elected to office is not a legally punishable offense, but if it were I would submit Republicans’ relegation of the tax code to a third priority as the first piece of evidence against them on the charge that they never intended to ever do away with ObamaCare once they had secured power.
When I set out to put this argument to paper, my first choice for a title was “Why the Tax Code Rules All.” It is still a fair description of the underlying theme that I mean to convey here. The tax code has a power to constrain that, while known to economists and budget experts, is less appreciated by the general public. The introduction of the federal income tax a century ago contributed largely to the expansion in the size of the federal government that followed; its progressive structure and inclusion of loopholes, credits, and deductions has not only cost our economy fortunes in compliance costs and punished success but has given politicians a means of pitting income groups against one another and profiting from the spoils of class warfare; and it is, in many ways, the slowing metabolism of a government body that desperately needs to trim its waistline. Congressional Republicans know this full well and should be pushed by voters to pass a reformed tax code before the next eighteen months of Republican majority are used to engage in the same kinds of manipulations that we long deplored from Democrats during eight years of the Obama administration.
If they do not, our economy will never meet the potential of which it is capable and they will be lucky not to be ousted in favor of Democrats who, though all the more rapacious and shameless in their desire for tax manipulations and increased spending, will at least appear to voters as competent in their efforts to do so. Voters, after all, are not experts in public finance and fiscal theory—they do not always know whether one tax plan or another will be best for the economy or even how it will affect them personally—but they are often skilled in the art of discerning effective from ineffective leaders. We praise the leaders who act competently in the public interest, sympathize with those who act incompetently in the public interest, and fear those who act competently against the public interest, but we have little more than contempt for those who manage neither benevolence nor competence, and their time in high places is often short-lived.